Penn Entertainment (NASDAQ: PENN) shares rose 3.90% following JPMorgan's upgrade of the gaming stock, with analyst Joseph Greff raising the rating to "overweight" from "neutral" and increasing the price target to $27 from $19.

The upgrade highlights two key value drivers for Penn: ESPN Bet's potential success and the company's substantial regional casino business, which operates 43 casinos and racetracks across approximately twelve states.

Penn is currently investing $850 million in upgrading its land-based assets, including:

• $360 million to relocate the Hollywood riverboat casino in Aurora
• $185 million for moving the Joliet riverboat casino ashore
• Various improvements across other properties

These capital expenditures are expected to conclude in 2025, potentially improving free cash flow by 2026 and enabling debt reduction. Greff estimates the value of Penn's land-based casinos and market access fees at approximately $26 per share.

While ESPN Bet shows promising signs in attracting female and younger bettors, competing with established players like DraftKings and FanDuel remains a long-term challenge. JPMorgan suggests that if the interactive business doesn't meet expectations, Penn could consider strategic alternatives such as:

• Asset sales
• Mergers and acquisitions
• Divestiture of select casino operations
• Sale of its interactive business division

Despite earlier speculation about a potential takeover by Boyd Gaming (NYSE: BYD), Penn appears committed to its current strategic direction, focusing on both its traditional casino operations and digital gaming initiatives.

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